The study, which appears in the journal The Accounting Review, challenges previous research that says the fear of punishment is more effective for getting increased effort out of employees.

"Our findings show that carrots work better than sticks — in other words, workers respond better to bonuses than penalties," Sedatole said, adding those penalties can range from pay reductions and demotions to other disciplinary action, such as a salesperson with lower performance getting less territory to work.

The researchers came to their conclusions after conducting scientific experiments in which participants played the roles of supervisor and employee. Some employees were subjected to a bonus program implemented by the supervisor, while others worked under a penalty system.

"What this means for companies is that employees who receive bonuses for their efforts will work even harder, increasing productivity and potentially bolstering profits," Sedatole said. "But those subjected to penalties tend to distrust the supervisor and, because of that, work less hard."

The study, "Sticks and Carrots: The Effect of Contract Frame on Effort in Incomplete Contracts," was co-authored by Margaret Christ from the University of Georgia and Kristy Towry of Emory University.

Chad Brooks is a Chicago-based writer who has nearly 15 years' experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.